Energy majors to report second-quarter earnings

Earnings


A Surgutneftegas worker near pumpjacks in Surgut Region of the Khanty-Mansi Autonomous Area – Yugra, in the West Siberian petroleum basin.

Alexei Andronov | TASS via Getty Images

Oil and gas majors are likely to report “horrendous” second-quarter results over the next two weeks, energy analysts have told CNBC, with the three-month period through to the end of June widely expected to mark the “low point” of 2020.

“Big Oil” companies, referring to the world’s largest oil and gas majors, witnessed a historic fall in oil and gas prices during the second quarter as coronavirus lockdown restrictions coincided with an unprecedented demand shock.

Norway’s Equinor will report second-quarter earnings on Friday, with Austria’s OMV, Italy’s Eni, France’s Total and Anglo-Dutch company Shell set to report next week. The U.K.’s BP will unveil their quarterly results on August 4.

Stateside, ConocoPhillips will report earnings on July 30, with Exxon Mobil and Chevron expected to follow on July 31.

“I think it is going to be brutal and ugly,” Kathy Hipple, an analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told CNBC via telephone.

Hipple pointed out that international benchmark Brent crude futures averaged just $29 a barrel in the three months through to June, down from an average of $51 a barrel in the first quarter.

Brent crude futures tumbled to their lowest level since 1999 on April 21, while U.S. West Texas Intermediate futures plunged into negative territory for the first time on record.

IEA Executive Director Fatih Birol has since reportedly said he believes 2020 may well come to be regarded as the worst year in the history of global oil markets, with so-called “Black April” likely to be the worst month the industry has ever seen.

“The earnings for the second quarter are going to be horrendous,” IEEFA’s Hipple said, reflecting on a period of significantly weaker oil and gas prices for energy majors.

“My big takeaway is that this is not just the result of the virus: These are long-term, decade-old trends,” she continued. The oil industry “is not going away tomorrow, but it is a long-term decline that we are seeing.”

Brent crude futures traded at $44.61 a barrel on Thursday morning, up more than 0.7% for the session, while U.S. WTI futures stood at $42.19, around 0.6% higher.

Dividends

Stuart Joyner, analyst at market research firm Redburn, told CNBC via telephone that the second quarter was going to be “the low point” of the year for oil and gas majors, with all of them expected to report “pretty weak” results.

Dividend payouts to shareholders will also be an area of focus for energy market participants.

Oil giant Shell cut its dividend for the first time since World War II in the first quarter of 2020, while Norway’s Equinor slashed its quarterly dividend to shareholders by two-thirds.

Shell and BP have since announced second-quarter write-downs of up to $22 billion and $17.5 billion, respectively, on expectations of lower oil and gas prices over the next 30 years.

A BP company logo is displayed on a fuel pump on the forecourt of a gas station operated by BP Plc in London, U.K.

Chris Ratcliffe | Bloomberg | Getty Images

Redburn’s Joyner said Big Oil companies would fall into three categories when it comes to dividend payouts in the second quarter: The ones that are not going to cut, the ones that have cut and the ones that will cut.

He suggested Shell and Total would most likely fall into the first group, given both companies have previously indicated they would not cut their respective dividends in the second quarter, while Equinor was expected to maintain a lower level of dividends for the remainder of the year.

Joyner singled out Eni and BP as the two European oil and gas majors likely to cut dividends in the second quarter, predicting both companies would do so by approximately one-third.

“I think probably the key area of interest really is going to be around what they say prospectively about where businesses are headed and how quick the recovery is,” Joyner continued. “It is not necessarily going to focus, I think, on the performance in the quarter in the way that it would usually do.”

“It is fairly unusual from that perspective,” he added.

‘The game is up’

Spanish oil and gas firm Repsol reported a net loss for the second quarter on Thursday and announced write-downs of $1.5 billion in assets as it lowered expectations of oil and gas prices over the long-term.

It joins Shell and BP in downgrading the value of its assets in the wake of the coronavirus pandemic.

“The game is up: Oil and gas companies can no longer mask their financial frailty,” Nikki Reisch, Director of the Center for International Environmental Law’s Climate & Energy Program said in a report earlier this month.

When asked whether it was fair to assume that second-quarter results for oil and gas majors would most likely reaffirm this view of the energy industry, Reisch told CNBC: “I would say, yes.”

“No matter how companies slice or dice or present their performance, I think it is clear the signs are all pointing in the same direction — and that is a long-term systemic decline.”

“The status quo prior to Covid was far from a stable one for the oil industry, so I think we have to keep that in mind when interpreting any reported earnings,” Reisch added.



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